There’s no one right time to downsize your Australian home. For some homeowners, it’s when the kids have flown the nest, and they’re left with too much space. For some others, it’s when they retire. Regardless of circumstances, the decision to downsize to a smaller home is never an easy one, no matter how common it is.
Why? Because while it’s an effective real estate decision, it comes with emotional, physical, and financial baggage. That’s why it’s essential to do your research and weigh up the following pros and cons of downsizing your home before making your final decision.
Reasons for Downsizing
While every situation is different, there are some common reasons why homeowners might choose to downsize. These include:
1. Retirement Downsizing
More than 50% of Australian seniors and retirees are now open to downsizing their homes. Mostly, this is for financial reasons. However, other reasons include health issues, a desire for more accessibility and amenities, or just wanting a simple home that suits their new lifestyle.
2. To Free Up Equity for Investments
For those who want to invest in property or other ventures, downsizing can be an effective way to free up equity since their home value will have increased since they purchased it. So, by selling it and buying a smaller property, they can use that extra equity to make an investment.
3. To Improve Savings
Similarly, the extra amount can be used to boost savings in an offset account. Additionally, there will be savings on costs like insurance, council rates, and maintenance.
4. For Accessibility and Amenities in the New Home
This is often the case for seniors looking for a home that suits their needs, such as an accessible floor plan, a single-level home, or one that’s easier to maintain.
5. To Raise Family in a Suitable Locality
For families, the decision is often about finding a suitable locality to raise their children. This might be a quaint neighbourhood with good schools or a secure area with low crime rates. The motive is usually to provide the best environment for their children.
6. To Be Closer to Family/Friends
This is common among seniors or retirees who want to be closer to their grandkids or people who have moved away from their hometown and want to move back.
Downsizing can sound appealing, but you want to make sure that you’re doing it for the right reasons and not make any rapid decisions. Your home is likely your most expensive asset, so you don’t want to regret your decision later.
This is especially if you’re downsizing your current home for financial reasons. In this case, it’s best to consult with a financial adviser to see if downsizing is the best decision for your circumstances and ensure that you’re making the most of it if you proceed.
Advantages of Downsizing
There are multiple benefits of downsizing, including:
Increased Cash Flows
One of the most significant advantages of downsizing your home is the increased cash flows. This can come from reduced mortgage payments, lower property tax, lower utility bills like electricity and gas, and lower insurance costs.
There’s also the potential to make a profit from selling your previous home, which can be invested in different ways, such as topping up your superannuation fund or kids’ college fund.
Naturally, a smaller property will require less maintenance than a larger home. This means fewer repairs, painting, cleaning, and general maintenance tasks – giving you more time to relax or spend on other pursuits and more savings in the long run.
It also means that there’s less outdoor space to take care of, which can bring in extra money that would’ve otherwise been spent on landscaping and gardening since backyards and gardens are one of the most costly aspects of owning a home to maintain.
Most larger homes are family homes that have been lived in for years, with each family member accumulating their own belongings. When you’re downsizing, you’re forced to declutter – that is, get rid of items you no longer need or use. This can be a difficult and emotional process, but it’s necessary since the new home will have less space for storage.
This can be a liberating experience, and it also means that your new home will have a more elegant, sophisticated, and minimalistic appearance. Additionally, it’ll be easier to keep tidy and upkeep since there’s no room for anyone to hoard items or create clutter.
Another advantage of downsizing your home is that you can use the opportunity to make a locality change if you desire. If you’re sick of the traffic, noise, pollution, and the general hustle and bustle of the city, then downsizing is a great way to move to a more peaceful and rural area.
On the other hand, if you’re tired of living in the suburbs and want to be closer to the action, then you can use downsizing as an opportunity to move into the city where there are amenities like grocery stores, hospitals, schools, and parks within walking distance or nearby.
This is a great way to change your lifestyle and how you live – giving you a chance to start afresh somewhere new that better suits your needs and lifestyle.
Finally, downsizing your home can make it more accessible, especially if you’re downsizing to a single-storey dwelling. This is ideal for seniors or people with disabilities who may have difficulty climbing stairs or moving around a large home.
Even if you’re not downsizing for this reason, a smaller house can give you the opportunity to choose the home layout and design that best suits your needs. For example, you can choose an open-plan layout or flat layout if you don’t want stairs, or an outdoor design or multiple storeys if you want more living space.
Disadvantages of Downsizing
Just as there are advantages to downsizing your home, there are downsides to be aware of, including:
For many people, their family home is filled with memories and emotional attachment. It can be difficult to let go of a property that’s been in the family for generations or where you’ve raised your children. And if you’re downsizing because of retirement or your kids going off to college, it can be an emotionally challenging time.
This emotional toll can be especially felt during the decluttering process as you’re forced to get rid of items that may have sentimental value because the new home can only accommodate so much.
Finally, there’s the expected nostalgia when you move into a new home. It can be hard to adjust to the lifestyle change.
Despite the financial benefits of downsizing, there are also some financial costs to take into account. These include:
Costs of Repairing & Staging Your Current Home for Sale
Before you can sell your home, you’ll need to make sure that it’s in good condition. This may involve repairs, renovations, or even just a fresh coat of paint. And if your home is particularly old, you may need to hire a professional stager to make it look its best.
Property Valuation Costs
When you’re ready to sell your home, you’ll need to have it valued by a professional property valuer. This cost is generally borne by the seller.
Real Estate Agent & Legal Fees
Once your home is valued and you’re ready to put it on the market, you’ll need to engage the services of a real estate agent. You’ll also need to factor in the legal fees associated with selling your property, which can include conveyancing fees, title transfer fees, and any other government charges.
Similarly, if you hire any additional independent appraisers or financial advisers, you’ll also need to account for their fees.
You’ll need to pay stamp duty on the property’s value when you purchase your new home. This is a tax levied by state and territory governments in Australia, and the amount payable will differ from state to state.
When it’s decluttering time, you may need to use the services of a professional furniture removalist to get rid of any unwanted items. This can be an expensive exercise.
When it comes time to move into your new home, you’ll need to consider the cost of hiring moving companies. These will depend on the size of your home and the distance to the new area you’re moving to, but they can add up.
Downsizing means you’ll have less space to work with. Not only can this take the form of fewer rooms, less storage, and smaller living areas, but it can also mean compromising on activities that you generally enjoy. For example, if you love gardening, you may need to give up your garden or reduce the size of your plants and flower beds.
Seek Further Advice
As you can see, a lot goes into the equation when you’re downsizing your home. From financial considerations to emotional trade-offs, there’s a lot to think about before deciding to downsize your home.
To avoid any regrets and make a level-headed decision, it is ideal to seek professional financial and real estate advice from people who are experienced in downsizing real estate. Remember, the decision to downsize is life-changing, so it’s essential to be as informed as possible before-hand.
That way, you can be sure that you’re making the right decision for your circumstances.